Standard Chartered Bank UAE Branches Basel II Pillar 3 Disclosures 31 December 2016
Standard Chartered Bank UAE Branches Basel II Pillar 3 Disclosures Contents Appendix A Pillar 3 Disclosures Table 1 Table 2 Table 3 (a - b) Table 4 (a h) Table 5 (a b) Table 7 (a c) Table 10 Table 13 Table 14 Note: Table 6, 8, 9, 11 & 12 are not applicable for the Bank Appendix B Relevant notes from Statutory Financial Statements Note 3 (f) (viii) - Identification and measurement of impairment Note 3 (f) (ix) - Accounting policy for Offsetting Note 15 - Subordinated loan Note 27 - Financial Risk Management
APPENDIX A
APPENDIX B
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 3 (f) (viii) Identification and measurement of impairment The Bank assesses at each reporting date whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event has an impact on the future cash flows relating to the asset that can be reliably estimated. The Bank considers evidence of impairment at both individual asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectivelyassessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. Objective evidence that financial assets (including equity securities) are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Bank on terms that the Bank would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in equity security, a significant or prolonged decline in its fair value below its cost is an objective evidence of impairment. In assessing collective impairment, the Bank uses a statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are measured as the difference between the financial assets carrying amount and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. Losses are recognised in the statement of profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through the statement of profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the difference between the amortised acquisition cost and current fair value, less any impairment loss recognised previously in the statement of profit or loss, out of other comprehensive income to the statement of profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. When a subsequent event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment loss is reversed through the statement of profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Changes in impairment provisions attributable to time value are reflected as a component of interest income.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 3 (f) (ix) Offsetting Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to offset the amounts and intends either to settle on a net basis or realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses arising from a group of similar transactions such as in the Bank s trading activities.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 15 Subordinated loan This represents tier two capital injected by the Head Office in order to meet the local regulatory capital adequacy requirements. The details of various subordinated loans obtained from the Head Office are as follows: 2016 Currency Face Face Maturity Interest rate amount amount date USD 000 AED 000 2015 USD 100,000 367,281 26 November 2020 3 month USD Libor plus 300 basis points USD 85,000 312,189 26 November 2020 3 month USD Libor plus 300 basis points USD 75,000 275,461 31 October 2022 3 month USD Libor plus 305 basis points USD 80,000 293,825 31 October 2022 3 month USD Libor plus 305 basis points USD 170,000 624,377 23 December 2023 3 month USD Libor plus 250 basis points 1,873,133 Currency Face Face Maturity Interest rate amount amount date USD 000 AED 000 USD 100,000 367,292 26 November 2020 3 month USD Libor plus 300 basis points USD 85,000 312,198 26 November 2020 3 month USD Libor plus 300 basis points USD 75,000 275,469 31 October 2022 3 month USD Libor plus 305 basis points USD 80,000 293,834 31 October 2022 3 month USD Libor plus 305 basis points USD 170,000 624,396 23 December 2023 3 month USD Libor plus 250 basis points 1,873,189
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management 27.1 Introduction and overview The Bank has exposure to the following material risks from its use of financial instruments and operations: - Credit risk - Market risk - Liquidity risk - Operational risk - Reputational risk - Capital risk This note presents information about the Bank's exposure to each of the above risks, the Bank's objectives, risk management framework and approach for measuring and managing risk, and the management of the Bank's capital. 27.2 Risk management framework Effective risk management is fundamental to consistent and sustainable performance for all of our stakeholders and is therefore a central part of the financial and operational management of the Bank. The Bank adds value to clients and therefore the communities in which they operate, generating returns for shareholders by taking and managing risk. Through the Risk Management Framework the Bank manages enterprise-wide risks, with the objective of maximising risk adjusted returns while remaining within the risk appetite. As part of this framework, the Bank uses a set of principles that describe the risk management culture it wishes to sustain: - - - - - Balancing risk and return Manage risks to build a sustainable franchise, in the interests of all stakeholders. Take risks that are within the risk tolerances and risk appetite, and where consistent with the Bank's approved strategy. Manage risk profile so as to maintain a low probability of an unexpected loss event that would materially undermine the confidence of investors. Conduct of business Demonstrate that the Bank is Here for Good through the conduct, and is mindful of the reputational consequences of inappropriate conduct. Always seek to achieve good outcomes for clients, investors and the markets in which it operate, while abiding by the spirit and letter of laws and regulations. Treat colleagues fairly and with respect. Responsibility and accountability Take individual responsibility to ensure risk-taking is disciplined and focused, particularly within area of authority. Ensure risk-taking is transparent, controlled and reported in line with the Risk Management Framework, within risk appetite and risk tolerance boundaries and only where there is appropriate infrastructure and resource. Anticipation Anticipate material future risks, learn lessons from events that have produced adverse outcomes and ensure awareness of known risks. Competitive advantage Achieve competitive advantage through efficient and effective risk management and control.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.2 Risk management framework (continued) Risk Governance The Country Risk Committee (CRC) is responsible for the management of all risks other than those managed by the Asset & Liability Committee (ALCO). The CRC is responsible for the oversight of credit risk, country cross-border risk, market risk, operational risk, pension risk and reputational risk. The ALCO is responsible for the management of capital and compliance with, policies relating to balance sheet management, including management of our liquidity, capital adequacy, structural foreign exchange and interest rate risk. The CRC and the ALCO are chaired by the Chief Executive Officer. The Country Chief Risk Officer directly manages a Risk function that is separate and independent from the origination, trading and sales functions of the businesses. The Chief Credit Officer is responsible for credit risk in the segments of Corporate & Institutional Banking (CIB) and Commercial Banking (CB); the Country Credit Head Retail Banking is responsible for credit risk in the Retail Banking segment; the Head of Special Assets Management is responsible for remedial risk management; and the Head of Price Risk is responsible for Market risk and Head Traded Credit for Traded Credit risk. Regional Head of Group Treasury is responsible for Liquidity Risks (other than Prudential Liquidity for which CFO is responsible). The Bank has established policies, procedures, processes and controls and has provided the Risk team with adequate support by way of risk systems and tools for measuring and reporting risk for monitoring, controlling, reviewing and managing risk. The Bank follows the Risk Appetite Statement approved by the Standard Chartered Board. The Risk appetite Statement is underpinned by a set of financial and operational control parameters, known as risk tolerances. The Risk Appetite Statement is also supplemented by an overarching statement outlining the Group s Risk Appetite Principles. Control tools such as exposure limits, underwriting standards, scorecard cut-offs and policies and other operational control parameters are used to keep the Bank s risk profile within risk appetite and risk capacity. Roles and responsibilities for risk management are defined under a Three Lines of Defence model. Under the first line of defence, business unit, function and geographic heads are accountable for risk management. The second line of defence comprises the risk control owners, supported by their respective control functions. The third line of defence is the independent assurance provided by the Group Internal Audit function. 27.3 Credit risk Credit risk management Credit risk is the potential for loss due to the failure of counterparty to meet its obligations to pay the Bank in accordance with agreed terms. Credit exposures arise from both the banking and trading books. Credit risk is managed through a framework that sets out policies and procedures covering the measurement and management of credit risk. There is a clear segregation of duties between transaction originators in the businesses and approvers in the Risk function. All credit exposure limits are approved within a defined credit approval authority framework. The Bank manages its credit exposures following the principle of diversification across products, geographies, industries, collateral types and client segments. Credit policies and procedures set key control standards on credit origination and credit risk assessment, concentration risk and large exposures, credit risk mitigation, credit monitoring, collection and recovery management. In addition, there are other policies integral to the credit risk management such as those relating to stress testing, risk measurement and impairment provisioning.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.3 Credit risk (continued) Credit Risk mitigation Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral and guarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor. The Bank s credit policies set out the key considerations for eligibility, enforceability and effectiveness of credit risk mitigation arrangements. The requirement for risk mitigation is, however, not a substitute for the ability to pay, which is the primary consideration for any lending decisions. Physical collateral, such as property, fixed assets and commodities must be valued independently and an active secondary resale market for the collateral must exist. The collateral must be valued prior to drawdown and regularly thereafter. The valuation frequency is typically annual and more frequent valuations are driven by the level of price volatility of each type of collateral and the nature of the underlying product or risk exposure. Risk mitigation benefits may be reduced or removed where the collateral value is not supported by a recent independent valuation. Documentation must be held to enable the Bank to realize the asset without the cooperation of the asset owner in the event that this is necessary. Physical collateral is required to be insured at all times against risk of physical loss or damage. Collateral values are, where appropriate, adjusted to reflect current market conditions, the probability of recovery and the period of time to realize the collateral in the event of liquidation. The Bank also seeks to diversify its collateral holdings across asset classes and markets. Collateral values are, where appropriate, adjusted to reflect current market conditions, the probability of recovery and the period of time to realize the collateral in the event of possession. Where guarantees, credit insurance or credit derivatives are used as credit risk mitigation, the creditworthiness of the guarantor is assessed and established using the credit approval process in addition to that of the obligor or main counterparty Concentration risk Credit concentration risk may arise from a single large exposure to counterparty or a group of connected counterparties, or from multiple exposures across the portfolio that are closely correlated. Large exposure concentration risk is managed through concentration limits set by counterparty or group of connected counterparties. At the portfolio level, credit concentration thresholds are set and monitored to control concentrations, where appropriate, by country, industry, product, tenor, collateral type, collateralisation level and credit risk profile. Traded products Credit risk from traded products is managed within the overall credit risk appetite for corporate and financial institutions. The credit risk exposure from traded products is derived from the positive mark-to-market value of the underlying instruments, and an additional component to cater for potential market movements. In line with International Accounting Standards (IAS) 32, derivative exposures are presented on a net basis in the financial statements only if there is a legal right to offset and there is intent to settle on a net basis or realise the assets and liabilities simultaneously.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.3 Credit risk (continued) Investment securities Day to day credit risk management activities for traded securities are carried out by a specialist team within the Risk function whose activities include oversight and approval within the levels delegated by the Underwriting Committee. Issuer credit risk, including settlement and pre-settlement risk, and price risk are controlled by the Risk function. The following table provides analysis of the debt securities and equity shares which are neither past due nor impaired. The standard credit ratings used by the Bank are those assessed by Standard & Poors or their equivalent. Debt securities held which have a short-term rating are reported against the long-term rating of the issuer. For securities which are unrated, the Bank applies an internal credit rating. Analysis of the debt securities and equity shares Rating Debt Securities 2016 2015 Equity Debt Equity Shares Total Securities Shares Total AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AAA 2,920,777-2,920,777 1,194,616-1,194,616 AA- to AA+ 819,109-819,109 652,325-652,325 A- to A+ 331,650-331,650 74,855-74,855 BBB- to BBB+ - - - - - - Lower than BBB- - - - - - - Unrated 6,110,013-6,110,013 8,727,243-8,727,243 Credit rating & measurement Credit monitoring 10,181,549-10,181,549 10,649,039-10,649,039 Risk measurement plays a central role, along with judgment and experience, in informing risk taking and portfolio management decisions. A standard alphanumeric credit risk grade (CG) system for CIB and CB is used. The numeric grades run from 1 to 14 and some of the grades are further sub-classified. Lower credit grades are indicative of a lower likelihood of default. Credit grades 1 to 12 are assigned to performing customers or accounts, while credit grades 13 and 14 are assigned to non-performing or defaulted customers. An analysis by credit grade of those loans that are neither past due nor impaired is set out in note 27.3 (e). For Retail client IRB portfolios, we use application and behaviour credit scores which are calibrated to generate a probability of default and then mapped to the standard alphanumeric credit risk grade system. The Bank regularly monitors credit exposures, portfolio performance, and external trends that may impact risk management outcomes. Internal risk management reports are presented to risk committees, containing information on key environmental, political & economic trends across major portfolios and countries; portfolio delinquency and loan impairment performance.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.3 Credit risk (continued) Credit monitoring Clients are placed on early alert when they display signs of actual or potential weakness; for example, where there is a decline in the client s position within the industry, financial deterioration, a breach of covenants, non-performance of an obligation within the stipulated period or there are concerns relating to ownership or management. Such accounts are subjected to a dedicated process overseen by the Credit Issues Committees in the relevant countries where client account plans and credit grades are re-evaluated. In addition, remedial actions are agreed and monitored. Remedial actions include, but are not limited to, exposure reduction, security enhancement, exiting the account or immediate movement of the account into the control of Group Special Assets Management (GSAM), our specialist recovery unit. Typically, all Corporate & Institutional Banking, Commercial Banking and Private Banking past due accounts are managed by GSAM. For Retail Banking exposures, portfolio delinquency trends are monitored continuously at a detailed level. Individual customer behaviour is also tracked and considered for lending decisions. Accounts that are past due are subject to a collections process, managed independently by the Risk function. Charged-off accounts are managed by specialist recovery teams. Loan portfolio During 2016, gross loans and advances to customers have decreased by AED 3,362 million (2015: AED 3,675 million) to AED 33,238 million (2015: 36,600 million). a) Analysis of gross loans and advances by industry segment 2016 2015 AED 000 AED 000 Agriculture and Allied Activities 75,157 139,442 Mining & Quarrying 598,235 57,323 Manufacturing 1,887,802 2,497,289 Electricity, Gas and Water - 218 Construction & Real Estate 2,427,862 3,404,156 Trade 9,484,223 10,483,856 Transport, Storage & Communication 1,588,749 1,294,560 Financial Institutions 2,946,143 3,115,996 Other Services 1,334,316 1,325,979 Government - - Loans to Individuals 12,895,794 14,281,674 33,238,281 36,600,493 b) Analysis of gross loans and advances by geography 2016 2015 AED 000 AED 000 United Arab Emirates 31,314,854 34,881,127 Other GCC 242,075 299,982 India 95,828 126,475 Others 1,585,524 1,292,909 33,238,281 36,600,493 Concentration by location for loans and advances is based on the location of the borrower and/ or country of residence.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.3 Credit risk (continued) c) Analysis of loan portfolio by credit quality 2016 2015 Particulars Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking Retail Clients Total Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Retail Clients Total Impaired loans 894 2,059,343 982,257 12,288 169,470 3,223,358-3,389,858 170,658 12,288 158,207 3,731,011 Past due but not impaired loans 22,298 2,560,769 566,492-777,450 3,904,711 1,585 321,657 62,179-678,820 1,062,656 Neither past due nor impaired loans 2,628,399 8,782,649 5,316,725 824,183 11,186,655 26,110,212 4,025,379 16,357,159 1,962,672 941,889 12,545,106 31,806,826 Specific impairment provision (894) (1,327,562) (1,089,211) (12,288) (82,337) (2,511,398) - (1,910,215) (97,559) (12,288) (96,535) (2,116,597) Portfolio impairment provision (2,230) (438,920) (103,525) (9,206) (106,119) (657,770) (1,671) (493,878) (37,384) (132,287) (9,780) (673,329) 2,648,467 11,636,279 5,672,738 814,977 11,945,119 30,069,113 4,025,293 17,664,581 2,060,566 809,602 13,275,818 33,810,567 d) Loans and advances past due but not impaired The following tables set out the ageing of loans and advances which are past due but not impaired and for which no individual impairment provision has been raised. A loan is considered to be past due when the counterparty has failed to make a principal or interest payment when contractually due. Past due status of a loan does not necessarily mean that the counterparty is impaired. 2016 2015 Particulars Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking Retail Clients Total Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Retail Clients Total Up to 30 days past due 22,298 2,466,310 336,913-604,315 3,407,538 1,585 174,439 51,720-525,034 751,193 Between 31-60 days past due - 94,459 92,496-122,244 309,199-7,994 5,369-113,660 127,023 Between 61-90 days past due - - 137,083-50,891 187,974 - - 5,090-40,126 45,216 Between 91-150 days past due - - - - - - - 139,224 - - - 139,224 More than 150 days past due - - - - - - - - - - - - 22,298 2,560,769 566,492-777,450 3,904,711 1,585 321,657 62,179-678,820 1,062,656 e) Loans and advances neither past due nor impaired by Credit Grades The following tables set out an analysis of loans and advances by internal credit grading which are not past due and for which no individual impairment provision has been raised. Whilst there is no direct relationship between these credit grading and those of external rating agencies, investment, sub-investment and non-investment grading approximately equate to the expectation of default, with a higher rate of default expected within the noninvestment grade category. 2016 2015 Particulars Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking Retail Clients Total Loans to banks Corporate & Institutional Loans to customers Private Commercial Banking AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Retail Clients Total Grades 1-5: Investment grade 1,500,464 4,780,452 616,539 824,183 7,239,935 13,461,109 3,478,007 5,162,183 46,787 941,889 9,290,355 15,441,214 Grades 6-8: Sub-investment grade 1,126,030 2,867,255 3,344,190-3,715,918 9,927,363 540,434 7,002,225 769,025-2,198,419 9,969,669 Grades 9-11: Non-investment grade 1,905 451,784 1,204,120-211,948 1,867,852 6,938 4,085,680 1,143,227-1,049,973 6,278,880 Grade 12: Watch list - 683,158 151,876-18,854 853,888-107,071 3,633-6,359 117,063 2,628,399 8,782,649 5,316,725 824,183 11,186,655 26,110,212 4,025,379 16,357,159 1,962,672 941,889 12,545,106 31,806,826
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.3 Credit risk (continued) f) Analysis of non-performing loans by security The table below presents an analysis of the non-performing loans at the reporting date, split between fully secured, partially secured and unsecured, based on the loan coverage by collateral: 2016 2015 AED 000 AED 000 Fully secured 232,814 718,202 Partially secured 1,303,420 1,527,573 Unsecured 1,688,018 1,485,236 3,224,252 3,731,011 g) Collateral and other credit enhancements possessed or called upon The value of the collateral possessed/called upon by the Bank during the year are as below: 2016 2015 AED 000 AED 000 Vehicles 3,475 2,401 3,475 2,401
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.4 Market risk Market risk is the potential for loss of earnings or economic value due to adverse changes in financial market rates or prices. The Bank s exposure to market risk arises in support of its client activities, facilitation of which entails the Bank s taking moderate market risk positions. All trading teams support client activity; there are no proprietary trading teams. Hence, income earned from market risk related activities is broadly stable. The primary categories of market risk for the Bank are: interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rate options; currency exchange rate risk: arising from changes in exchange rates and implied volatilities on foreign exchange options; The Corporate And Institutional Banking Risk Committee (CIBRC), under authority ultimately delegated by the Group Risk Committee (GRC), acts as the prime risk governance body for market risk. Market & Traded Credit Risk (MTCR) is the independent control function established to monitor and control the Bank s exposure to market risk. Market risk limits are applied as required by the Market Risk Limits Policy and related procedures documents. All businesses incurring market risk must do so in compliance with the Market Risk Limits Policy. Market risk limits are reviewed by the CIBRC to ensure they are consistent with financial budgets and any changes in the business operations. MTCR co-ordinates the limit review process. The Bank uses historic simulation to measure VaR. As at 31 December 2016, the VaR of the Bank amounted to AED 6.7 million (2015: AED 8.91 million). Interest rate risk from non-trading book portfolios is transferred to the Financial Markets where it is managed by the ALM desk under the supervision of the Asset and Liability Committees (ALCO). ALM deals in the market in approved financial instruments in order to manage the net interest rate risk, subject to approved VaR and risk limits. Sensitivity analysis - interest rate risk Interest rate risk is also assessed by measuring the impact of reasonably possible interest rate movements. Assuming a fluctuation in interest rates of 1 basis point, the Bank estimates the following impact on the net profit before taxation for the year: 2016 2015 AED 000 AED 000 Movement in yield by 1 bp +/- 276 +/- 251 Impact on equity after tax +/- 221 +/- 201 The substantial portion of the Bank s assets and liabilities are re-priced within one year. The interest rate sensitivities set out above are economic value based and illustrative only. The result does not incorporate actions that could be taken by the management to mitigate the effect of interest rate movements.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.4 Market risk (continued) Interest rate sensitivity of asset and liabilities The Bank's interest rate gap position on assets and liabilities based on the contractual re-pricing dates is as follows: Particulars Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year Over 1 year Non Interest bearing Total Effective interest rate 2016 / (2015) AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 % 2016 Cash and balances with the Central Bank of the UAE - 800,191 1,700,026 2,039,087-3,794,498 8,333,802 0.58 / (0.40) Loans and advances to banks 991,234 612,105 720,958 327,651 - (3,481) 2,648,467 1.14 / (1.23) Due from the Head Office and other branches 2,190,668 699,014 37,247 42,625 4,756 1,353,789 4,328,099 0.64 / (0.40) Loans and advances to customers 9,743,444 7,725,298 3,335,163 6,058,696 3,250,327 (43,815) 30,069,113 4.14 / (4.15) Investment securities 791,371 2,793,209 2,057,665 - - - 5,642,245 1.23 / (1.95) Property and equipment - - - - - 18,077 18,077 - Intangible assets - - - - - 16,278 16,278 - Other assets including acceptances - - - - - 4,867,960 4,867,960 - Total assets 13,716,717 12,629,817 7,851,059 8,468,059 3,255,083 10,003,306 55,924,041 Due to banks 2,333,751 34,562-18,419-837,585 3,224,317 0.73 / (0.36) Due to the Head Office and other branches 1,266,360 662,880 1,272,957-24,318 185,627 3,412,142 0.43 / (0.33) Deposits from customers 8,833,702 6,036,206 3,878,092 1,133,076 454,814 16,708,036 37,043,926 0.88 / (0.65) Other liabilities including acceptances - - - - - 5,004,086 5,004,086 - Subordinated loans - - - - 1,873,133-1,873,133 3.53 / (3.14) Equity - - - - - 5,366,437 5,366,437 - Total liabilities and equity 12,433,813 6,733,648 5,151,049 1,151,495 2,352,265 28,101,771 55,924,041 On balance sheet interest rate sensitivity gap - 2016 1,282,904 5,896,169 2,700,010 7,316,564 902,818 (18,098,465) - Cumulative interest rate sensitivity gap - 2016 1,282,904 7,179,073 9,879,083 17,195,647 18,098,465 - - On balance sheet interest rate sensitivity gap - 2015 6,377,642 4,174,758 2,935,502 7,590,022 (1,563,377) (19,514,547) - Cumulative interest rate sensitivity gap - 2015 6,377,642 10,552,400 13,487,902 21,077,924 19,514,547 - -
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.5 Liquidity and Funding risk Liquidity risk is defined as the risk that a firm, although solvent, does not have available sufficient financial resources to enable it to meet its obligations as they fall due. Funding risk is defined as the risk that a firm does not have stable sources of funding in the medium and long term to enable it to meet its financial obligations, such as payments or collateral calls, as they fall due, either at all or only at excessive cost. Management of liquidity risk The Bank manages liquidity and funding risk through the Risk Type Framework which provides the architecture for the overall management and control of the risks. The framework sets out the Bank s risk principles and standards, and defines the board approved Risk Appetite Statement and the associated metrics. Liquidity in each country is managed by the Country ALCO within the pre-defined liquidity limits, and in compliance with Group liquidity policies and local regulatory requirements. ALCO committees support this, and membership consists of senior management of each country. In addition to metrics, countries maintain Country Liquidity Crisis Management Plans ( CLCMPs ) which detail a Country s governance, escalation and contingency funding plan using a suite of Early Warning Indicators. The Risk Appetite Statement reflects the Bank s risk appetite for Liquidity and Funding, which is expressed through the following risk metrics: Survival Horizons - defines for how long, during an extreme but plausible liquidity stress, entities within the Group are able to survive before franchise damaging management actions are deployed. Liquidity Coverage Ratio - regulatory stress ratio measuring the proportion of high quality liquid assets against net outflows over 30 calendar days. Advances to Deposits Ratio - ensures that the Bank remains largely client funded and does not become excessively reliant on wholesale funding. Wholesale Borrowing-External - measures and limits the absolute size of external wholesale borrowings by ALM to avoid excessive reliance on such funding as it may not be available during stress. Maximum Cumulative Outflow (MCO): the MCO is the peak cumulative net cash outflow over a defined time period arising from all on-balance sheet and off-balance sheet items, under normal conditions. Wholesale Borrowing Internal (WBI): the WBI includes borrowings by one entity from any other branch or operating subsidiary that is part of the Standard Chartered Group. Medium Term Funding Ratio (MTFR) it is calculated by dividing liabilities with a maturity of more than 1 year by assets of similar maturity. MTFR is calculated both on a contractual & behavioural bases and is monitored separately for ACY, LCY and Foreign Currency FCY. Undrawn commitment and contingents limits which are set to ensure that drawings against such products do not adversely impact the day to day liquidity position of the Bank and is monitored separately for ACY, LCY and FCY. Basel 3 Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as per Group guidance Depositor Concentration where the balance of Top depositors can t exceed a certain % of Funded Liability Base (FLB).
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.5 Liquidity risk (continued) a) Maturity profile of asset and liabilities The following table analyses the contractual maturities of assets and liabilities based on the remaining period at the reporting date Particulars Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year Over 1 year Total AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Cash and balances with the Central Bank of the UAE 675,213 3,919,477 1,700,026 2,039,086-8,333,802 Loans and advances to banks 895,933 612,105 720,958 327,651 91,820 2,648,467 Due from the Head Office and other branches 2,838,865 699,014 742,840 42,624 4,756 4,328,099 Loans and advances to customers 4,836,060 4,514,858 2,281,383 3,443,919 14,992,893 30,069,113 Investment securities 227,957 330,563 1,603,082 2,183,725 1,296,918 5,642,245 Property and equipment - - - - 18,077 18,077 Intangible assets - - - - 16,278 16,278 Other assets including acceptances 1,060,424 1,264,016 519,615 603,863 1,420,042 4,867,960 Total assets 10,534,452 11,340,033 7,567,904 8,640,868 17,840,784 55,924,041 Due to banks 3,143,500 34,562 55 40,394 5,806 3,224,317 Due to the Head Office and branches 1,451,885 117,464 1,272,957-569,836 3,412,142 Deposits from customers 25,315,805 6,115,575 3,928,935 1,212,138 471,473 37,043,926 Other liabilities including acceptances 1,178,821 1,755,841 511,605 597,854 959,965 5,004,086 Subordinated loan - - - - 1,873,133 1,873,133 Equity - - - - 5,366,437 5,366,437 Total liabilities and equity 31,090,011 8,023,442 5,713,552 1,850,386 9,246,650 55,924,041 Net on balance sheet liquidity gap 2016 (20,555,559) 3,316,591 1,854,352 6,790,482 8,594,134 - Off balance sheet items Letters of credit 654,567 1,501,841 165,020 139,514 127,756 2,588,698 Guarantees 1,366,839 2,610,148 2,450,892 3,175,576 6,751,128 16,354,583 2,021,406 4,111,989 2,615,912 3,315,090 6,878,884 18,943,281 At 31 December 2015: Total assets 14,060,477 12,876,398 5,489,100 7,654,336 20,401,462 60,481,773 Total liabilities and equity 34,412,009 7,039,776 5,959,929 2,101,197 10,968,862 60,481,773 Net on balance sheet liquidity gap 2015 (20,351,532) 5,836,622 (470,829) 5,553,139 9,432,600 - Letters of credit 553,360 871,754 169,146 356,561 94,954 2,045,775 Guarantees 1,251,864 1,949,084 2,265,159 3,071,923 5,339,109 13,877,139 1,805,224 2,820,838 2,434,305 3,428,484 5,434,063 15,922,914
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.5 Liquidity risk (continued) b) Contractual cash flows payable for the Bank's financial liabilities (excluding derivative financial instruments) on an undiscounted basis The following table analyses the contractual cash flows payable for the Bank s financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the below table will not agree to the balances reported in the balance sheet as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. 2016 2015 Particulars Carrying amount 3 months or less 3 month to 1 years 1 to 5 years More than 5 years Carrying amount 3 months or less 3 month to 1 years 1 to 5 years More than 5 years AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 AED 000 Due to banks - Principal 3,224,317 3,178,062 40,449 5,806-4,052,079 3,971,292 18,474 62,313 - - Interest 6,401 3,065 - - 1,456 185 5,377 - Due to the Head Office and branches - Principal 3,412,142 1,569,349 1,272,957 569,836-3,515,651 2,749,821 171,836 593,994 - - Interest 1,975 11,248 62,504-1,738 450 37,379 - Deposits from customers - Principal 37,043,926 31,431,380 5,141,073 467,473 4,000 40,785,152 32,641,187 7,076,376 1,067,589 - - Interest 57,484 50,608 2,750 757 40,279 126,583 5,516 - Subordinated debt - Principal 1,873,133 - - 679,470 1,193,663 1,873,189 - - 569,286 1,303,903 - Interest 17,752 53,253 257,271 87,930 15,410 46,230 246,557 106,012 Other liabilities including acceptances - Principal 3,359,828 2,260,578 902,770 196,480-2,162,643 1,623,745 356,698 182,200 - Total liabilities (principal only) 48,913,346 38,439,369 7,357,249 1,919,065 1,197,663 52,388,714 40,986,045 7,623,384 2,475,382 1,303,903
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.6 Operational risk Operational risk (OR) is the potential for loss resulting from inadequate or failed internal processes, people, or technology or the impact of external events, including legal risks. The Bank seeks to control operational risks to ensure that operational losses do not cause material damage to the Bank s franchise. OR exposures are managed through a consistent set of processes that drive risk identification, assessment, control and monitoring. Locally, the Head of Operational Risk is responsible for operational risk along with other Risk control owners (e.g. Legal & Compliance, Finance per the Risk Management Framework risk sub types). The responsibility for daily management of OR exposures rests with the business. Senior Operational Risk Officers have been appointed to ensure that the OR management framework is implemented and that OR exposures are effectively controlled. The CRC provides oversight of operational risk management. It is supported by the Country Operational Risk Committee, which exercises oversight of the Bank s OR exposures to ensure that it is aligned with the Bank s Risk Management Framework and the Group Financial Crime Risk Committee, which oversee operational risk arising from the global businesses and functions. 27.7 Reputational risk Reputational risk is the potential for damage to the franchise, resulting in loss of earnings or adverse impact on market capitalisation as a result of stakeholders taking a negative view of the organisation or its actions. Failures in behaviours or systems may affect stakeholders perceptions of the Group s commitment to its Here for good brand promise. All employees are responsible for day-to-day identification and management of reputational risk. These responsibilities form part of the Code of Conduct and are further embedded through values-based performance assessments. The Group reports on its environmental and social performance through the Group s Annual Report and Accounts and through the sustainability section of the Group s website. The Country Risk Committee provides country-wide oversight on reputational risk, sets policy and monitors material risks. At the country level, the Country Chief Risk Officer is the Risk Owner for reputational risk supported by the Head of Corporate Affairs to identify report and manage material risks.
Standard Chartered Bank - UAE Branches Notes (forming part of financial statements) 27 Financial risk management (continued) 27.8 Capital risk management The Bank s capital management approach is driven by its desire to maintain a strong capital base to support the development of its business in the UAE and to meet the regulatory capital requirements of the Central Bank of the UAE at all times. The Central Bank of the UAE also requires the Pillar 2 Supervisory Review Process to focus on the Bank s Internal Capital Adequacy Assessment Process (ICAAP) in addition to Pillar 1 capital calculations. The ICAAP includes a risk based, forward looking view of Credit, Market and Operational risk capital. The Asset Liability Management Committee (ALCO) in the UAE is responsible for ensuring that the Bank maintains a strong and comfortable capital position in UAE. Based on the balance sheet plan, the Bank prepares a capital plan to determine the capital requirement, which is reviewed and approved by the country ALCO and Group Treasury. An update on the capital position is provided to the country ALCO on a regular basis. During Q1 2017, Central Bank of UAE has issued the Basel 3 capital calculation guidelines for banks operating in UAE which are only effective from 2017 and hence have not been considered for these financial statements. The Bank's regulatory capital is analysed into two tiers: Tier 1 capital, includes share capital, reserves and retained earnings and the element of fair value reserve relating to unrealised gains / losses on financial assets classified as available-for-sale and cash flow hedges. Tier 2 capital includes qualifying subordinated liabilities. The Bank has complied with all regulatory requirements issued by the Central Bank of the UAE during the year. The following is the Bank s capital adequacy position under Basel II at 31 December: Basel II capital adequacy ratio (CAR) Capital Base 2016 2015 AED 000 AED 000 Tier 1 capital 5,350,159 5,544,779 Tier 2 capital 2,148,865 2,296,231 Total capital base (sum of tier 1 and tier 2 capital) 7,499,024 7,841,010 Risk Weighted Assets Credit Risk 43,794,979 44,712,132 Market Risk 926,892 1,923,755 Operational Risk 4,599,158 5,269,393 Total risk weighted assets (RWA) 49,321,029 51,905,280 Total regulatory capital expressed as % of RWA (Minimum 12%) 15.20% 15.11% Tier 1 capital ratio expressed as % of RWA (Minimum 8%) 10.85% 10.68%